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O2, the UK subsidiary of Telefonica (TEF - Analyst Report) has signed up more than 1 million 4G customers and its LTE network now covers 41% of the country’s population. The Spanish incumbent also draws up plans of network modernization across the nation.

Since the launch of its 4G service on Aug 2013, O2 has expanded its superfast network in 191 towns and cities and has achieved the magic figure in 8 months. Slough, Berkshire based O2 also noted that the data used by its 4G customers in the first six months is much more than the data carried by its network between 2000 and 2008.    

However, Everything Everywhere, a joint venture between Orange (ORAN - Analyst Report) and Deutsche Telekom, is way ahead of O2 in the 4G race and has attracted 2 million customers in only 14 months of rolling out the service. The company is also ahead of O2 in 4G network deployment covering more than 70% of its country’s population.

O2 also chalked out plans to spend £16 million ($26.8 million) in 2014 to improve data coverage and extend its 3G network presence to 200 unserved locations. The company plans to upgrade one fourth of its 2G and 3G towers to deliver better voice and data connectivity during peak hours and in high density areas.  

U.K.’s second largest telecom operator continues to invest £1.5 million ($2.5 million) daily on its network to provide flawless connectivity. The carrier announced that upgrading its older 2G infrastructure will support its growing presence in the M2M business.

However, despite the investment we believe the company will have to catch up with Everything Everywhere in the 4G race, customer growth of which is only second best to that of the South Korean operators. Further, the two rounds of tariff reduction by French-German partnership has led to an accelerated uptake of its 4G service.

Telefonica currently carries a Zacks Rank #5 (Strong Sell). Other stocks worth considering within this sector are SK Telecom Co Ltd. (SKM - Analyst Report) and Shenandoah Telecommunications Co. (SHEN - Snapshot Report), both of which carry a Zacks Rank #1 (Strong Buy).

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